Study says razing Mellon Arena makes economic sense

Architect calls report 'incomplete'

April 28, 2010 12:00 AM

By Mark Belko Pittsburgh Post-Gazette

Destroying Mellon Arena is a better economic bet than saving it.

That's the conclusion of an economic analysis which found that the Penguins' plan to demolish the arena and redevelop the land had nearly double the benefit of a proposal to reuse the structure and surround it with restaurants, retail and other amenities.

But Downtown architect Rob Pfaffmann, who wants to save the Igloo, ripped the analysis, saying it didn't take into account the value of historic tax credits or the development that would accompany a reuse.

"I would say it's incomplete and needs a lot of work," Mr. Pfaffmann said of the study.

The analysis by Oxford Development Co., a consultant for the city-Allegheny County Sports & Exhibition Authority, Mellon Arena owner, was prepared as part of a mandated review to determine if there are alternative uses for the 48-year-old landmark.

It concluded that the Penguins' plan to demolish the arena and create a mixed use development that included housing, offices, shops and restaurants would have a public economic benefit of $103.5 million in wage and real estate taxes over 10 years. It would create an estimated 2,940 permanent jobs and $84 million in wages by the 10th year.

By contrast, Mr. Pfaffmann's plan, which also includes housing, offices, retail and restaurants, and construction of a hotel as part of the arena reuse, would have a $53.8 million benefit in wage and real estate taxes. It would create an estimated 2,498 permanent jobs and $72 million in wages by the 10th year.

The study estimates the cost of demolishing the arena and adding streets to reconnect the Hill District and Downtown at $28.35 million. It estimates infrastructure costs under Mr. Pfaffmann's plan, which also includes connections from the Hill to Downtown, at $26.4 million, with the largest cost -- $9.4 million -- to prepare the arena interior and open space for concerts and other events.

Even when the infrastructure costs are subtracted, the Penguins' plan emerges as the winner, with a net public benefit of $75.2 million compared to the reuse's $27.4 million.

In notes accompanying the figures, Oxford stated, "A cleared unconstrained site with new street grid which will reconnect the Hill to Downtown presents the best opportunity for private developers to design cost-effective and economically viable real estate investments for the residential, retail, office, and hospitality components."

The Penguins, who won the right to develop the Mellon site and surrounding land, 28 acres in all, during negotiations on a new arena, welcomed the findings.

"As we said all along, we think that the best use of this site for Pittsburgh and the region is to tear down Mellon Arena and build a new development on the 28 acres," spokesman Tom McMillan said.

The chief difference in the numbers appeared to be real estate taxes, with the Penguins' plan generating $73.3 million over 10 years versus $41.7 million over the same time under Mr. Pfaffmann's plan.

Oxford did not give a reason for the difference. Mr. Pfaffmann said he did not know why there would be such a discrepancy. He said the intent in reusing the arena, now publicly owned and not taxed, is to make it a private facility and return it to the tax rolls.

But he took greater issue with other aspects of the analysis. He said, for instance, that Oxford did not take into account historic tax credits, up to 20 percent, likely to be available in any reuse.

Likewise, the report does not attach any economic value to Mr. Pfaffmann's proposal to reuse part of the arena as a community ice rink/amphitheater surrounded by park space.

Mr. Pfaffmann argued that such amenities add value to a project and make it more attractive for development.

"I believe the asset of the park does increase the value of the real estate. It makes it possible for projects to happen," he said.

The report does pan Mr. Pfaffmann's idea to build a hotel within the guts of Mellon Arena, saying it "presents numerous issues and is likely not economically feasible."

But Mr. Pfaffmann disputed that, saying historic tax credits could lower the cost by as much as 20 percent and that using part of the arena foundation for the hotel also would save money.

Chris Cieslak, a consultant who works with Oxford and the SEA, said the analysis is preliminary and would be reviewed by the various parties, including Mr. Pfaffmann, now at work on alternative uses for the Mellon property. She said nothing has been finalized.

Mellon Arena is scheduled to close this summer when the Penguins move into the Consol Energy Center.